America’s credit scores are facing their largest drop since the 2008 financial crisis, signaling growing concerns about household finances.
The average FICO score in the U.S. has fallen from 717 to 715, marking the biggest one-year drop since the Great Recession, according to data from the credit-rating company FICO.
While this drop might seem small, experts warn that it’s a sign of bigger financial troubles for many Americans.
Rising Financial Struggles Impact Credit Scores
This dip in credit scores is indicative of a more serious issue.
Americans are struggling to keep up with their financial obligations, as credit card balances rise and interest rates remain high.
More and more borrowers are facing difficulties in managing everything from car loans to mortgages.
When people miss payments, it negatively impacts their credit scores, indicating that they are becoming riskier borrowers.
The Return of Missed Student Loan Payments
A significant factor contributing to this decline is the return of missed federal student loan payments on credit files.
During the pandemic, federal student loan payments were paused and didn’t appear on credit reports.
However, that protection ended in September 2024.
The Federal Reserve had warned that borrowers who fall behind on their student loans would see substantial drops in their credit scores.
As a result, a surge in serious delinquencies is now taking place, particularly in the first quarter of 2025.
Long-Term Impact of Missed Payments
While some borrowers may eventually catch up on their missed payments, the damage to their credit scores could remain for years.
Credit reports will reflect these missed payments for seven years, affecting people’s ability to get loans or credit at favorable rates.
The Federal Reserve estimates that over nine million student loan borrowers will experience substantial declines in their credit scores in early 2025.
The Financial Toll on Consumers
A lower credit score can have a ripple effect on consumers’ financial lives.
Those with lower scores may face reduced credit limits and higher interest rates when applying for loans.
It’s also important to note that improving one’s credit score can lead to significant savings in the long run.
For example, moving from a “fair” credit score to “very good” (between 740 and 799) could save a person up to $39,000 over the lifetime of their loans, according to LendingTree analysis.
The Impact of Inflation and Consumer Behavior
The inflationary environment has only made matters worse for consumers, contributing to rising credit card balances and an increase in missed payments.
While credit scores had been improving after the financial crisis, reaching a high of 718 in 2023, the ongoing inflation has now caused them to decline once again.
Last year marked the first drop in over a decade, and this year, scores fell for the second time as delinquencies of 90 days or more surpassed pre-pandemic levels for the first time.
How Bad is the Situation?
To put things in perspective, during the 2008 financial crisis, average credit scores fell as low as 686.
Today’s numbers are still higher than those post-crisis lows, but the current trend is alarming, and many are worried about the long-term effects.
As the financial strain continues to hit more Americans, the outlook for credit scores and financial stability in the U.S. remains uncertain.
The Bottom Line
As credit scores drop, it’s clear that financial struggles are becoming more widespread.
The combination of rising debts, missed payments, and the return of student loan obligations is creating a challenging environment for many.
Consumers with lower credit scores will face higher costs and tougher financial decisions.
However, those who work to improve their credit standing may be able to reduce their financial burden and save thousands over time.